Doe Run Peru wants environmental cleanup extended

By IBT Staff Reporter On 05/20/09 AT 3:17 AM

Doe Run Peru has told the government it will only meet the terms of a financial bailout plan if its deadline to complete an environmental cleanup plan is extended, one of its suppliers said on Tuesday.

The company's sprawling La Oroya smelter has been mostly stopped since March after banks, worried about falling metals prices, cut off its credit line in a sign the global downturn was hitting the backbone of Peru's economy.

In April, a group of mining companies that sell concentrates to Doe Run Peru agreed to give it a $175 million credit line if its parent company, U.S.-based Renco Group, met two conditions.

The stipulations were that Renco had to fill a $156 million financial shortfall in its Peruvian unit and pledge its shares to the Peruvian government as a way of promising that its unit would finish an environmental cleanup project of one of the world's most polluted sites.

But work at Peru's No. 4 exporter has yet to return to normal and company officials have told the government it wants its cleanup deadline extended before it puts its shares on the line.

They are asking for an extension of the environmental remediation plan, among others things, that is what has frozen everything, said Ysaac Cruz, chief executive of mining company El Brocal (BRO.LM: Quote)(BROi.LM: Quote), told Reuters.

El Brocal was one of dozens of companies that sell concentrates to the smelter and agreed to back new credit lines for Doe Run Peru.

When it bought the smelter in a 1997 privatization auction, Doe Run was expected to take 10 years to clean up La Oroya. But in 2006 the company got a three-year extension and now the government is being asked to grant another one.

Doe Run Peru says it has so far spent $307 million on the cleanup and total costs will end up being $500 million.

A Doe Run Peru official declined to say if the company has asked for a new extension.

On Monday, Doe Run Peru said the smelter's copper and lead circuits were partially working, while the zinc circuit was stopped.

Unions have pressured President Alan Garcia to make sure the plant starts up again as it generates some 3,500 direct jobs and 16,000 indirect jobs.

On Tuesday, Peru's National Society of Mining, Oil and Energy said Doe Run is not doing enough to meet obligations it took on at the time of its financial rescue, risking jobs of its workers and a timely environmental cleanup.

This is unacceptable behavior, given the responsibilities Doe Run assumed, the group said in a statement.

Doe Run Peru's smelter, 108 miles (174 km) east of Lima, churns out copper, zinc, lead, gold and silver. The city surrounding it has often been ranked in the top 10 of the world's most polluted places.

Cruz said companies that normally sell to Doe Run Peru have found alternative buyers, but the company needs to resume operations if it hopes to pay its creditors.

The whole process and the bailout have been agreed upon and is ready to be implemented, if they resolve this (extension) issue. As long as it's not resolved it's a problem between Doe Run Peru and the government, Cruz said. (Editing by David Gregorio)